Bank Failures and Government Deficits

June 13, 2023

WHEN WILL THE OTHER SHOE DROP? 

Mainstream media has been relatively quiet about bank failures lately. Has the risk of more bank failures decreased; or has the gravity of the situation lessened? 

Likely not, in either case; and the lack of “newsworthy” articles on the subject may be part of an effort to shift focus away from the matter. Too much attention would be problematic as we move closer to the 2024 election. 

The recent side show regarding the United States deficit spending limit received more attention than necessary, though, and filled the gap in adequate fashion. 

Let’s look at both of these issues. 

BANK FAILURES

The Silicon Valley Bank failure opened the sleepy eyes of investors and others, but the addition of a few other banks to the list of casualties didn’t do much to waken realistic and justifiable concerns about the systemic nature of the problem. 

Somebody else’s problems don’t drive public opinion. It is not all about size, either. For most of us, the severity of any perceived problem depends on the extent to which it affects us personally. 

For example, an unemployment rate of 5-6% doesn’t seem to be a big deal. Even as high as 10% doesn’t generate or command proportionate concern. When it reaches 12-15%, the fireworks start. At 20% or more, most everyone is affected. 

The best example of this is the Great Depression during the 1930s. The unemployment rate peaked at 25-30% and, after declining and leveling off, remained above 20% for the better part of a decade. 

The economic effects were everywhere. Former millionaires were selling pencils and apples on b street corners. Soup lines in some cities were only blocks away from each other. And bank failures were in the headlines on a daily basis for several years. 

The reality of additional bank failures was not in doubt. Rather, the concern of individuals was embodied in the question “Will my bank be next?”.

GOVERNMENT DEFICITS 

All governments deficit spend; and, all governments deficit spend without limit. Accept it and move on. 

Was the outcome ever in doubt? Never. 

What would be impressive, though, is that rather than threatening to shut down the government (not a bad thing, but a non-event nevertheless) and not make social security benefit payments, Congress would vote to suspend payment of their own salaries first; and, then, do likewise for all officials of the Executive Branch (President and VP, cabinet members, staff, etc.).

As it is, political posturing by clowns in the circus does not make up for the fiscal irresponsibility that has gone on for more than one hundred years.

SUMMARY AND CONCLUSION

At some point soon, there will likely be a trigger event that puts the issue of bank liquidity back on the front page. 

A likely candidate for the event would be commercial real estate loans. The sorry state of commercial real estate and the impending write down/write off of several hundred billion dollars worth of underwater commercial mortgages, etc. cannot be postponed much longer. The effects will be greater that anything seen so far. 

It is the nature of all governments to spend and tax. Deficits do not matter to them -regardless of what they say. Politicians will continue to talk about deficits, of course. All the while, they will grow larger and more burdensome.

By Kelsey Williams for Neptune Global

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Neptune Global is a full service precious metals dealer serving individual investors, the wealth management industry, broker dealers and institutional investors. The firm’s platform of investment bullion includes all forms of traditional physical precious metals in conjunction with innovative physical precious metal investment assets which provide unparalleled diversification, transparency and liquidity. Their leadership in the market is documented with such official designations as being the recipient of a US Patent for the PMC Ounce (Precious Metals Composite). While dynamic offerings such as the PMC Ounce provide investors with many of the conveniences and benefits generally associated with mutual funds and ETFs, all of Neptune Global’s product offerings remain true to the firm’s core convictions related to the time tested value ascribed to physical precious metals ownership.


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